The Real Unemployment Rate

The latest jobs report is out, showing the economy added 114,000 jobs, beating estimates of 113,000. The unemployment rate fell to 7.8%, the Department of Labor reported, due to the addition of 873,000 people who self-identified as employed.

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That rate was a sharp drop from the 8.1% a month earlier. Those jobs were mostly part-time in nature. Also, the 7.8% jobless rate understates the problem of the underemployed.

What would the unemployment rate be if all the people who want a job suddenly re-entered the workforce? Answer: 11.63%. For the math, see below.

If the labor force participation rate had remained constant at the 67.5% level at the end of the recession (in June 2009), the unemployment rate would have been reported at around 11%. Count the underemployed, meaning part-timers wanting full time work, and the rate is 14.5%.

The economy must add 13.3 million jobs over the next three years -- 375,000 jobs each month -- to bring the unemployment rate down to 6%, notes economist Peter Morici. That means GDP growth must be running at a 4% to 5% pace, not the 1.3% rate it’s running at now, a pace that has been trending downhill since last year.

Not good for a recovery that began in June 2009—since then, GDP growth has been anemic.

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Here’s the math behind the unemployment rate if all the people who want a job suddenly re-entered the workforce, according to FOX News analyst James Farrell:

In September 2012, there were 6.73 million people who say they currently want a job, but are not in the labor force because they are not looking for work, says Farrell. If all 6.727 million of these workers suddenly started looking for a job, and would in turn be counted both in the workforce and as unemployed, then the unemployment rate would rise to 11.63%.

Sept. 2012 civilian labor force 155.063 million Sept. 2012 – people who want a job but not looking 6.727 million Adjusted labor force 161.79 million

Here are other numbers to keep handy as the presidential election nears. The two important jobs reports are the household survey versus the establishment survey. These reports show the size of the U.S. workforce.

The household survey includes agricultural workers, the self-employed, unpaid family workers, and private household workers among the employed. These groups are excluded from the establishment survey.